Drought in Kenya. Image courtesy of Mercy Corps.
“The drought affected everyone ranging from the farmers who produce the goods down the way to the consumer.”

Festus, middle-aged male grocery shop retailer, urban area Kenya

Understanding the impact of climate change on small businesses is critical to the success of the startups and innovators serving them.

For micro-retailers in Nigeria and Kenya, flooding and drought are cited as the most significant and catastrophic weather events that impact their businesses.

“In most cases I get my goods 300 kilometers away in Taveta, where the area is hardly hit by drought. The farmers in Kilifi, my hometown, prepared their lands ready for the planting season but only a few grew. The remaining crops were invaded by locusts. They harvested very little crops and it was not sufficient. The demand was so high that it affected the prices and they started selling to us, shop owners, at higher prices.

 

Currently, most farmers have harvested the little maize left after the previous drought. They don’t even sell them to the merchants because they fear there could be another bad drought in the coming months.”
Festus, middle-aged male grocery shop retailer, urban area Kenya

Over one-third of micro-retailers interviewed in our research — 37% of MSMEs — were impacted by drought. Rural MSMEs were more impacted by drought than urban or peri-urban MSMEs, which reported flooding as the most impactful weather events on their businesses.

The Impacts of Drought

We found the primary impact of drought on MSMEs to be the reduced availability of goods, as farms aren’t able to produce or distribute as many fruits, vegetables, livestock, or dairy, as well as the knock-on effect of this on MSME customers’ income for those involved in agriculture.

We found the primary impact of drought on MSMEs to be the reduced availability of goods, as farms aren’t able to produce or distribute as many fruits, vegetables, livestock, or dairy, as well as the knock-on effect of this on MSME customers’ income for those involved in agriculture.

Drought, or prolonged periods of dry and hot weather, brings a myriad of implications and challenges for micro-retailers and their customers. Across a number of crops, farmers and producers struggle to produce the same quantity and quality of outputs during periods of drought. Depending on the severity, this may lead to complete lack of availability of goods, or drive up prices due to scarcity — for micro-retailers and for customers in turn.

This reduction in the ability to grow and produce agricultural goods also impacts the customers of MSMEs in another way — in rural areas, many customers of micro-retailers depend directly on farming or natural resources for their livelihood and income. This means that during periods of drought, the lack of production of crops not only reduces availability of goods, but also reduces the income and spending power of these customers.

The reduced spending power of customers has a number of knock-on effects for MSMEs. Many of their customers will simply cut down on their spending and consumption during these periods, leading to a decline in income for MSMEs themselves. Other customers will request to buy goods on credit. This credit would often be informal credit offered directly by the micro-retailer, deferring any income weeks or months into the future, at a time when customers are able to repay.

 

Allowing customers to purchase goods on informal credit is critical for customer loyalty, but it leaves MSMEs without any immediate income to buy more stock or provide for their own consumption. Many micro-retailers described having to make tough decisions and tradeoffs like this one in order to keep their customers, as a result of stiff competition between MSMEs in their communities. This competition also created pressure from customers to keep their prices low, despite paying a greater price to suppliers, and often micro-retailers had to accept reduced margins to maintain customer loyalty.

The combination of reduced income for customers and lack of availability of goods, leads to a negative feedback loop that puts downward pressure on micro-retailers’ income. Without income, they are unable to purchase additional products to supply to their customers — reducing the availability of critical goods in the last mile.

In addition to the challenges of reduced availability of goods during periods of drought, many small businesses described the challenge of the spoilage of goods, particularly in areas where drought is associated with periods of high heat (a challenge we also found in the case of flooding). It wasn’t uncommon for goods to be destroyed in transit if there was a lack of cold chain logistics or if they were in transit for long periods of time. Goods could also be damaged or spoiled in the shop if the micro-retailer suffered power outages or didn’t have access to cooling solutions.

“Heat waves are common in my area, but they haven’t affected my business as much. The smaller shops out there in the open markets are the ones who were affected. They don’t have air conditioning like me. So their groceries will go bad very quickly and they can’t sell them, and they report higher losses.”
Sebit, a middle-aged female mini-mart owner, urban area, Nigeria

Similar to the case of flooding, when goods were damaged in transit, micro-retailers were often still required to purchase them at full price. They then had to sell these goods at a discount, alongside other goods spoiled in the shop, or discard those that were damaged beyond use, further reducing the income of micro-retailers and the availability of critical goods in last mile communities.

“We normally get most commodities such as tomatoes, potatoes, onions, and cabbages from Taveta and the Tanzanian border. And most of these commodities are perishable. When you buy one box of tomatoes at $37 and by the time they reach your shop nearly a quarter of it is spoiled, you have to sort them out and sell them at a price where you can recover your money. You use the spoiled ones as animal feed to the farmers who rear pigs so you can at least get something to recover your incurred loss.”
Charles, a middle-aged male grocery store owner, urban area, Kenya